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On 4 September 2017, the Government secured the necessary support in the Senate to pass the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the Bill). The new legislation will commence operation after it receives Royal Assent. Crucially for entities that will fall under the scope of the new ‘franchisor liability’ laws (either ‘responsible franchisor entities’ or holding companies), the provisions will take effect six weeks after this date.

Franchisor liability laws

While a number of other amendments were made to the Bill, no significant changes were made to the proposed franchisor liability laws that have been the subject of previous updates from us.

Senators Leyonhjelm (Liberal Democratic Party) and Bernardi (Australian Conservatives) had proposed to significantly narrow the definition of ‘responsible franchisor entity’ from that originally proposed, by adding a new requirement that the franchisor’s ‘influence or control’ over the franchisee have a ‘material impact’ on the franchisee. However, this amendment was not supported by the Opposition and was not passed.

The definition of ‘responsible franchisor entity’ will remain:

(2) A person is a responsible franchisor entity for a franchisee entity of a franchise if:

(a) the person is a franchisor (including a subfranchisor) in relation to the franchise; and

(b) the person has a significant degree of influence or control over the franchisee entity’s affairs.

As stated above, other changes made to the Bill include the introduction of:

accessorial liability for the new ‘serious contraventions’ of the Fair Work Act 2009 (FW Act)

new examination powers for the Fair Work Ombudsman (FWO)

a new provision regarding record-keeping, which imposes a reverse onus on an employer to prove that an allegation is not substantiated, in circumstances where the employer failed to keep records about the subject of the allegation.

Will the laws apply to your franchise network?

We are aware that some franchisors have already assumed that they will be covered by the new franchisor liability laws, and have commenced implementing measures to be in a position to establish a ‘reasonable steps’ defence. However, it is essential that before any other steps are taken, each franchisor first consider whether they will meet the definition of ‘responsible franchisor entity’. This preliminary assessment is important as franchisors who might not otherwise fall within the definition may do so once they seek to implement a ‘reasonable steps’ defence, and therefore start exerting influence or control over a franchisee.

Do you understand your franchisees’ employment arrangements?

If the franchisor liability laws do apply to your business, it will be sufficient for a responsible franchisor entity only to ‘reasonably be expected to know’ that a contravention would occur or would be likely to occur (rather than actually know), in order to potentially be in breach of the new laws. For this reason, responsible franchisor entities will need to be informed about franchisees’ employment arrangements. Key issues to consider include:

Does the franchisor have the right to require franchisees to provide this information?

What employment arrangements are currently in place – an enterprise agreement or modern award? Are there also common law contracts/letters of offer?

Has there been a transfer of business at the franchisee – and if so do any transferable instruments apply?

Do you have control or the right to control franchisees in relation to their employment arrangements?

If a franchisor has significant rights to control a franchisee under the franchise agreement, this will ‘lift the bar’ for what will constitute reasonable steps to prevent a contravention. Conversely, if a franchisor has limited rights, the franchisor may still wish to consider establishing a voluntary compliance system and encourage participation by franchisees.

What factors are relevant to tailoring a compliance system for your franchisees?

There is no ‘one size fits all’ compliance system to establish a reasonable steps defence – this should be tailored having regard to the following:

A franchisor’s right to control – can audits or reporting be imposed? If not, a compliance system can still invite franchisees to participate.

The sophistication of franchisees – do they have HR experience or capability?

Location – if franchisees are geographically dispersed, compliance systems should include the ability for information to be provided remotely – i.e. online or by teleconference facilities.

Nature of the franchisee workforce – do the franchisees employ young and/or migrant workers? If so, what steps are the franchisees taking to ensure that these employees understand their employment rights?

What you should do now?

Given that these provisions will commence six weeks after the laws commence, we recommend that franchisors take immediate steps to understand the impact of these laws on their business.

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